Throughout last week, investors had expected the worst from the weekend's referendum in Crimea on whether the Ukrainian region should secede in favor of joining Russia. Although the result of the referendum was predictably one-sided, with 97% of those voting siding with Russia, the fact that worst-case scenarios involving armed conflict didn't occur was enough to lift the Dow Jones Industrials (DJINDICES: ^DJI ) by more than 150 points as of 11 a.m. EDT. Yet although all 30 Dow stocks posted gains in the first hour of trading, some stocks fared much better than others. IBM (NYSE: IBM ) and 3M (NYSE: MMM ) were among the top performers, while Coca-Cola (NYSE: KO ) and McDonald's (NYSE: MCD ) managed only small gains.
Haves and have-nots
The key to understanding the disparities in performance among Dow components is that in a relief rally, investors gravitate toward the stocks that will benefit the most from improving conditions. Throughout much of last week, defensive consumer stocks held up reasonably well in the downturn that sent the Dow lower all five days, while higher-growth stocks took hits because of their larger exposure to the threat of a market plunge. With investors now concluding that some of the danger has passed, it's natural for more aggressive stocks to bounce back further.
Moreover, some signs have appeared that IBM and 3M could finally provide the faster growth that shareholders want to see. IBM this morning released a study indicating that advanced analytics will play a much larger role in the marketing efforts of major corporations worldwide, supporting IBM's big-data initiatives as especially useful for the high-performing chief marketing officers that Big Blue refers to as "digital pacesetters." 3M has also ramped up the pace of its innovation lately, with new announcements ranging from patents on nickel-manganese-cobalt cathode technology for lithium-ion batteries to water-filtration systems pointing the way toward potential growth areas for the manufacturing conglomerate.
Conversely, even a peaceful resolution in Ukraine won't solve most of Coca-Cola's and McDonald's problems. Much more important for both companies is what's happening with China's economy at the moment, with recent reports pointing to a more dramatic slowdown in economic growth than most investors anticipated. Both companies have had trouble finding growth on the domestic front and have looked increasingly at foreign markets to take up the slack. Yet with key emerging markets falling short, both McDonald's and Coca-Cola could continue to see trouble ahead.
For the Dow overall, expect a relief rally to fade as Western nations take action after denouncing the Crimean vote as meaningless and incendiary. Without a broader resolution to the key issue of whether Russian expansionism will be allowed to occur, markets will continue to see uncertainty on the geopolitical front.
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